In April 2023, the National Apartment Association (NAA) conducted a survey, sponsored by AppFolio, of more than 2,000 property management industry professionals to uncover their most pressing challenges. This report delves into these challenges — and the solutions being employed to contend with those challenges — as well as industry needs, short-term outlooks for staffing and net operating income, strategies companies are using to prepare for a potential recession and other long-term issues facing the industry.
Top Industry Challenges, 2023 vs. 2021
Comparing the top three challenges in 2023 to those identified by the same survey conducted in 2021 highlights how much has changed in just 18 months. In Q4 2021, the industry was capping off a remarkable year for demand, occupancy and rent growth. Inflation presented challenges but had not yet peaked. New supply was being delivered — and absorbed — at a steady clip. Back then, HR, Staffing & Recruitment was by far the number one challenge, capturing 74% of responses as a top three challenge and beating the number two challenge, Operational Efficiencies, by 11 percentage points and the number three challenge, Maximizing Revenue & Profits, by 26 percentage points.
Number One Challenge: Operation Efficiencies
In 2023, however, the impacts of inflation have spoken loud and clear. The number one challenge this year is Operational Efficiencies, comprising 76% of responses, followed by Maximizing Revenue & Profits (61%) and HR, Staffing & Recruitment (42%). Predictably, within Operational Efficiencies, the most challenging activity was reducing costs, as cited by 57% of respondents. The next three challenges, essentially tied at 40%-41%, are finding high-quality suppliers, effectively keeping track of projects and suppliers and freeing up teams from labor-intensive processes.
Number Two Challenge: Maximizing Revenue & Profits
Inflation also appeared in the Maximizing Revenue & Profits challenge, with navigating rising inflation pressures as the number one activity with 47% of responses. Increasing occupancy rates and retaining current residents came in at second and third, respectively, typifying a period of cooling demand amid rising costs.
Number Three Challenge: HR, Staffing & Recruitment
HR, Staffing & Recruitment, which garnered 51% of the responses for the number one challenge in 2021, saw no change in the ranking of the most challenging activities in 2023. Attracting new team members, training new hires quickly and reducing staff turnover were top challenges in both years. Inflation also made it into this challenge, with demand for higher compensation tied for third place.
Survey participants were asked what they believe they need, that they don’t currently have, that would help solve their top challenges. More staff, no more inflation and predictability were common themes. Respondents expressed the need for talent pipelines to include more trade schools; employees to fill open positions; a strong voice at the national, state and local levels; and real solutions for affordability issues that can be obtained only through public-private partnerships.
On the technology front, industry professionals need technology that can help balance onsite staff productivity without risking resident satisfaction; better protections for fraud; and access to better, actionable data of all types, including apartment, market/submarket, demographic, consumer, marketing statistics, financial and regulatory.
Responses to the open-ended question, “What are some of the long-term challenges you expect the property management industry will face in the next 5-10 years?” covered a vast array of topics including affordability, aging properties, costs, labor, litigation, new supply, government regulations and technology.
Affordability is already top of mind for the industry, but juxtaposed with rising costs, it quickly becomes a monumental challenge. Most comments focused on trying to balance rent levels with increasing costs — not only operational but construction, financing, regulatory and compliance costs as well. Also tied into affordability is the age of the apartment stock. Some 44% of the nation’s apartments were built before 1980, according to the most recent census estimates, many of which are naturally affordable. However, materials expenses, labor costs and financing for repairs or redevelopment, the latter of which could also spawn community opposition, were major concerns for survey participants, as was the cost of bringing these aging properties up to current energy and other environmental standards.
Comments dealing with labor not only cited shortages but also the lack of qualified workers. One respondent mentioned having properties with hotel-like amenities but not enough staff to maintain that value proposition for residents. Other concerns centered on retiring Baby Boomers and an inexperienced future workforce, especially when so few of those entering the workforce see property management as a desirable career.
With inflation moving in the right direction and recession fears receding, owners and operators may see relief on the horizon for some of these challenges. The many non-economic challenges, however, may very well continue, highlighting the need for all rental housing stakeholders to work together in finding solutions to keeping the industry responsible for housing millions of Americans vital and profitable.
For more information, contact Paula Munger.